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Showing posts with label Review. Show all posts
Showing posts with label Review. Show all posts
Sunday, October 30, 2011
Saturday, April 16, 2011
<b>Real Estate</b> Connect New York – Event Review « <b>Real Estate</b> Japan <b>...</b>
By Adam German February 9th, 2011 Events
For anyone connected to real estate or is the proprietor of technology associated with the industry, attending this conference is a must as it’s a podium for industry leaders to explain the details of their success and also to display their services to a captive audience starving for new ways to make money and save time concurrently.
While past conferences were memorable, the highlight of this one was on the morning of Jan 13th. The day opened with a general session that included all five of Realogy‘s world famous brands CEOs; Jim Gillespie of Coldwell Banker, Sherry Chris of Better Homes and Gardens Real Estate, Rick Davidson of Century 21, Charlie Young of ERA and Mike Good of Sotheby’s International. These global leaders in real estate franchising shared the stage for a half-hour session about topics ranging from their predictions for 2011 to near term global expansion plans.
On the outlook for American real estate in 2011:
Sherry Chris – “We’re realistic and that’s the way we need to be. The message we want to portray to our brokers as well is that we’re not overly optimistic and that’s the important thing.”
Jim Gillespie – “Real estate has led (the United States) out of every major downturn and recession since World War II but this time we need help from the economy. What we look at now is other industries and see how well they’re doing. The (American) auto industry was up 11% in 2010 over the previous year and I think for most people housing is the largest expenditure they make, automobiles being the second and I’d like to see something happen in our industry like what happened after Cash for Clunkers.” He was referring to the buyer’s assistance program implemented by the American government in July of 2009 that (to debatable results) is given partial credit for resuscitating the American auto industry.
Rick Davidson was open about Century 21's goal of increasing global presence by saying just that; “Our goal is to grow globally.” Currently, Century 21 has a total of 121,000 agents with only 70,000 of that number based in the United States and Canada. Davidson also iterated that the company had just “celebrated their 10th anniversary in China” with plans to expand further into the Middle Kingdom.
Audience questions were welcomed and one member noted that decades ago, 70% of the North American real estate industry was aligned with a handful of brand name companies. Today, that number has dwindled to 30%. The question posed was whether agents are better off working with large brand names or not. Without hesitating, Jim Gillespie replied “You’re better off with us than without us,” which pulled a good-natured laugh from the audience.
As a follow up, Sherry Chris pointed out that “(30 years ago the industry) was a broker controlled environment which shifted to an agent environment and now it has shifted to a consumer environment.” Her message was that even the largest corporations must acknowledge the increased power that an independent agent wields thanks to the level playing field moulded by current technology.
Real Estate Connect NYC wasn’t just for agents to talk shop but also was a showcase for the latest in real estate technology. Dominant software displays included top time-saving apps that agents need to know about, sessions on how to use social media tailored specifically for agents and location-based technologies like Google Maps and Facebook Places complete with tips on how to fully utilize these services.
One specifically notable technology that was showcased is the aptly named “BuyerMLS” that takes the idea of a traditional multi-listing system that lists properties and focuses on the other side of the deal; the buyer. Agents using the system can upload their buyer’s criteria to advertise to other agents. Agents with properties that match the buyer’s criteria can then contact the agent representing the buyer.
BuyerMLS is cloud software, accessible anywhere you have an internet connection and even though the developer’s intentions are for inter-office communication, the software can have easily extrapolated benefits for increasing inter-broker transactions. Instead of touting time savings like all the other displayed software, Buyer’s MLS was the only software that helps agents increase revenue.
The next Real Estate Connect will be held July 27th – 29th at the Hilton San Francisco Union Square.
Tokyo Apartments For Sale | Tokyo Apartments For Rent | Real Estate Japan
Friday, February 4, 2011
Review of Commercial Real Estate in the 21st Century
View other sections: www.crereview.com
1 By: John Boyer
Table of Contents
Over the first decade in the 21st century, there were several key events / factors that had a major impact on the commercial real estate business. This document examines the following topics:
General Commercial Real Estate…..3 Dot-Com Bubble…..4 September 11, 2001…..5 Base Realignment and Closure 2005….6 The ?Prosperous Times?…..7 Credit Crunch & Housing Market…..8 Technology’s Effect…..9 Individual Property Types…..10-17
Vacancies Transactions Cap Rates Volume Price / SF Absorption
What has Changed…..18 What the Future Holds?.....19 About Coldwell Banker Commercial..20
© 2010 Coldwell Banker Commercial Affiliates. A Realogy Company. All Rights Reserved. Coldwell Banker Commercial Affiliates fully supports the principles of the Equal Opportunity Act. Each Office is Independently Owned and Operated. Coldwell Banker Commercial, the Coldwell Banker Commercial Logo are registered (or unregistered) service marks licensed to Coldwell Banker Commercial Affiliates. Information was provided by sources deemed reliable. The views express herein this document do not represent the views of the Coldwell Banker Commercial organization.
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Commercial Real Estate in the 2000s
About this Document
To say the least, the first decade of the 2000s was a very interesting era in commercial real estate. It was unlike any preceding decade and will go down in history as a benchmark. The industry has drastically changed over the last 10 years and this document will examine some of the major challenges the industry faced. There is a subsequent PDF timeline available for visual reference. By no means does this cover everything that happened during this time period, but it will look at the major events and the impact on commercial real estate.
Change in Prices over the Decade1
The chart below highlights the change in price of some common items over the decade. Interesting to note the significant increase in prices related to a declining household income.
Item Car (Toyota Corolla base) Average Income per year Average Monthly Rent Average Cost of a gallon of Gas US Postage Stamp Loaf of Bread Dozen Eggs
2000 $17,518 $40,343 $675 $1.26 33 cents $1.72 89 cents
2009 $19,395 $39,423 $780 $2.56 44 cents $2.49 $1.37
% Change 11% (-1%) 13% 49% 25% 31% 35%
See More: www.walletpop.com/blog/2009/12/29/then-vs-now-how-prices-have-changed-since-1999/ As for commercial real estate, as the charts in the later part of the document indicate, across all sectors, sales and prices rose for eight straight years, followed by two very down years. To say the least, this decade was a very intriguing time for commercial real estate.
Industry Happenings
During the early part of the 21st century, mergers and acquisitions are the key words that come to mind. Several firms either merged or were acquired by others, causing the commercial real estate market share to shift dramatically. CBRE acquired Insignia CBRE acquired Trammel Crow Spaulding & Slye merged with Jones Lang LaSalle (JLL) Staubach merged with Jones Lang LaSalle (JLL) Oncor International was purchased by Realogy Corporation Equity Office Property Trust (the largest owner of office buildings in the US) was acquired by Blackstone Group Colliers International and First Services Real Estate Advisors join to become known as Colliers International. Colliers Turley Martin Tucker, Cassidy & Pinkard Colliers, Colliers Pinkard, Colliers ABR, BT Commercial, BRE Commercial, and Colliers Houston rebrand as Cassidy Turley. Now, lets take a look at the first major event that effected Commercial real estate in the 2000s: the Dot-Com bubble.
View other sections: www.crereview.com
Dot-Com Bubble
Dot-Com Bubble
The first decade of the 2000s started off with a bang, or ?BURST? that is. After Netscape launched the first successful Internet browser in the early 90s, the Internet industry exploded and a period began that is now known as the ?Dot-Com? bubble. Hundreds of start-up internet companies or ?dot-coms? popped up and thousands of jobs were formed. Venture capital flowed into the new companies and investors bought up stocks in companies that were highly over-valued, and a number of dot-com millionaires were born. Many of these companies engaged in unusual business practices with the hopes of dominating the market. The mantra was growth over profit, assuming that if they built up their customer base, their profits would rise as well. At the height of the boom, it was possible for a promising dot-com to make an initial public offering (IPO) of its stock and raise a substantial amount of money, even though it had never made a profit. Investors responded to daring business practices with money; lots of it. The US stock market rose dramatically during the this period, with hundreds of companies being founded weekly, especially in tech hot spots like the Silicon Valley near San Francisco. Some companies engaged in lavish internal spending, such as elaborate business facilities and luxury vacations for employees. Then the bubble burst in March of 2000. Investors began selling off stock in large quantities, putting the market into a precipitous fall for the next two years until it finally bottomed out. Billions of dollars vanished and thousands lost their jobs. 2 Follow the complete timeline
Future Effect
Recent research suggests, however, that as many as 50% of the dot-coms survived through 2004, reflecting two facts: the destruction of public market wealth did not necessarily correspond to firm closings, and second, that many of the dotcoms were small players who were able to weather the financial markets storm. Also, much of the sublease inventory opened the doors for tenants to enjoy Class A space at reduced rates.
Web 2.0 Bubble? Commercial Real Estate Effect
Cities all over the US sought to become the "next? Silicon Valley by building network-enabled office space to attract Internet entrepreneurs. There was false demand for commercial real estate that was fueled by the dot-com companies and their insatiable appetite for growth. Many professionals achieved great success quickly moving tenants into 100,000 SF facilities — much of which was unneeded space. In the beginning of the bubble, Data Centers — facilities housing computers, servers, telecommunications and storage equipment, and systems to backup and protect data, power and cooling systems — were the popular purchase. When the bubble burst, much of these Data Centers and office space were left vacant. The cost of transferring Data Centers back to usable office space was very expensive. Over-committed tenants quickly dumped their unneeded space, quadrupling the available sublease inventory in the span of six quarters to 146 million SF3. The flood of sublease space was concentrated in technology hubs such as San Francisco, San Jose, Seattle, Austin and Boston. Silicon Valley and San Francisco were hit the hardest. Rents plummeted in both areas. San Francisco's office demand in the 91block former industrial area known as South of Market, had 49% vacancy after the burst. The citywide office vacancy rate climbed to 23% in the fourth quarter of 2001 from 1.8% in the third quarter of 2000. Office space from failed companies such as Pets.com were turned into Apartments. Employment in Silicon Valley high-tech industries declined by about 17% and rent fell 30%. 4 In 2007, new Internet technologies prompted another rush of start-ups to tap the energy associated with Web 2.0 - wikis, blogs, podcasts, widgets and social media — to quickly extend their Internet real estate. But while the Web 2.0 phenomenon may have some things in common with the Dot-Com bubble, experts note that there are also differences, including the low cost of entry for companies launching blog, wiki or social networking businesses. The main difference, however, is that this time around, consumers are driving the adoption of the technologies rather than companies trying to force their Internet sites onto users.5
Opportunities Today
The business need for Internet speed is rising exponentially in the digital era of Google, Yahoo, Netflix, YouTube, Facebook, Twitter, online gaming and smart phones. Such "cloud" data must be stored offsite at colossal data centers. Data center property niche has been one of the few commercial real estate sectors to generate sizzle through the recession. Granted, data center sales, leasing and development transactions slowed considerably in 2008 and 2009 as construction and acquisition financing dried up. However, pent-up demand since 2005 has sparked a new flurry of construction, acquisitions and equity raising activity by data center builders and investors, with hundreds of thousands of square feet of new data center facilities 4 were announced in 2009-2010.6
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September 11, 2001
Just as the economy was showing signs of bouncing back from the Dot-Com bubble, the September 11, 2001 attacks on the U.S. occurred.
About the Attack
September 11, 2001 - terrorists hijack four U.S. airliners. The attack of planes leveled the World Trade Center and inflicted serious damage to the Pentagon in Arlington, VA, causing nearly 3,000 total deaths. The fourth plane was heroically crashed by passengers when they learned of the plot, preventing destruction of another structure. The plot was attributed to the AlQaeda organization led by Osama Bin Laden. The U.S. then began the War on Terrorism and attacks Afghanistan. View some of the costs of the attacks.
Effect on NYC
In NYC, 13.4m SF of Class A office property was destroyed and another 14.4m SF damaged. This would negatively affect the national absorption numbers for the office sector. Lower Manhattan lost approximately 30 percent of its office space. This was more than the total vacant space in an already tight New York City office market. After 9/11, some tenants spread to multiple locations, including suburbs, and, in many cases, moved to low-rise buildings. In New York City, about $2.8 billion in wages were lost in the three months following the 9/11 attacks. The economic effects were mainly focused on the city's export economy sectors. The city's GDP was estimated to have declined by $27.3 billion for the last three months of 2001 and all of 2002.7 View the complete World Trade Center study by FEMA. View a Detailed report on Tenants that were effected in NYC
Effect on Commercial Real Estate & the Economy8
As a result of September 11, consumer confidence was low. Air travel was more difficult due to enhanced security and people were afraid to fly. Retail spending was down. There was a lot of speculation that ?trophy? buildings would suffer, but that would prove not to be the case. The effect of 9/11 was short-lived in that aspect. With hindsight, we can see that the U.S. economy was already suffering and the 9/11 attacks did not have a significant effect on economic growth either nationally or in New York. In the months that followed, there was a flock to secondary markets, especially in the retail and apartment sectors, but that would also prove to be short-lived. The 9/11 attacks had a profound impact on the attitudes among corporate real estate executives. Most firms were adopting a number of new security and safety measures, revisiting all communication procedures and engaging in general disaster and business recovery planning. Some firms moved their business to more suburban areas. Total occupancy costs, as a result of security and insurance costs, were said to increase by 1% to 3% on average with greater increases on central business district high-rise properties. At the same time, it appeared that lenders would not finance property if terrorist insurance was not part of the coverage. The cost of insurance for office space went up from $0.24 to $0.40/SF. Some of these costs were pushed down to the tenants.
Security In 2001, the cost of security in privately-owned office buildings was approximately $0.50/SF. By 2003, that cost had doubled to more than $1.00/SF. The increased expenditures covered items such as: identity cards, scanners, security cameras and personnel. In government-owned buildings, which have installed security codes, concrete barriers, structural reinforcement, wider stairways and enhanced communication systems, the costs go as high as $2.00/SF. On the other hand, the cost of office security in the suburbs is considerably less than it is in the cities. Moving just 15 to 20 miles outside of the city can reduce the cost of security by as much as 60 percent. Moreover, studies show workers feel safer when situated just a few miles outside the urban areas, so several firms did move their shops to suburban areas. Back-Up Sites Another result was the potential need for some firms to create back-up sites. Firms were wary of concentrating their data in one place. The cost, time and manpower to research catastrophe preparedness, and the investment in additional real estate and equipment to set up dual locations can be considerable. Looking on the Bright Side This is not to say that heightened security measures are all negative. In fact, the number of robberies and break-ins committed in New York City office buildings has declined. With gated and secure parking areas, there have been fewer car thefts. Over all, commercial buildings are safer than ever before. 9 5 View other sections: www.crereview.com
Base Realignment and Closure (BRAC) 2005
Base Realignment and Closure 2005
What is BRAC (Base Realignment and Closure)? By definition, BRAC is a process of closing excess military installations and realigning the total asset inventory to reduce expenditures on operations and maintenance. More than 350 installations have been closed in four BRAC rounds: 1989, 1991, 1993, and 1995. The most recent round of BRAC completed in the fall of 2005 and with the commission's recommendations became law in November 2005.10
Major facilities slated for closure:
Fort McPherson, Georgia Fort Gillem, Georgia Naval Submarine Base New London in Connecticut (removed from list August 24, 2005) Portsmouth Naval Shipyard in Kittery, Maine (removed from list August 26, 2005) Naval Air Station Brunswick in Maine Ellsworth Air Force Base in South Dakota (removed from list August 26, 2005) Cannon Air Force Base in New Mexico (temporarily removed from closure August 26, 2005) Fort Monmouth in New Jersey Defense Finance and Accounting Service in New York Fort Monroe, Virginia Willow Grove Naval Air Station in Pennsylvania Naval Station Ingleside, Texas Otis Air National Guard Base, Massachusetts (removed from list August 26, 2005) Navy Supply Corps School
Effect on Commercial Real Estate & the Economy
When a military facility closes, the effects ripple throughout the surrounding community as families lose their neighbors, businesses lose their customers and workers lose their jobs. It also may affect transportation in many cities as workers are moved around to the alignment. A positive impact is the ?buffer? space around the bases may become available for development. Although the report came out in 2005, the effects of it may not have been seen yet. Many of the bases scheduled to close either have been removed from the list, or haven’t closed yet. September 2011 is the date that many of the facilities listed will be closed. We will know in the years to come the economic impact of the BRAC 2005. Just to give you an idea of the effect of a BRAC, the closure of Norton Air Force Base in 1994 had a devastating impact especially to the City of San Bernardino. There has been some redevelopment since then, however, the financial impact on the city is still being felt today. So what will communities do with the empty base space? These are massive spaces that had a very specific function, and are typically in secure, remote areas. Several plans have been put into place as to what to do with the empty base space. These plans are guided by “Local Redevelopment Authorities.? These plans include city centers, green centers, biomedical research parks, residential and other commercial uses. An issue to deal with is because of the security levels of some bases, the street grid and other necessary items are not extended out into the community. So the challenge becomes finding a way, as the bases are redeveloped, to make those connections; new roads, removal of security gates, etc.
Major facilities slated for realignment:
Army Human Resource Command (HRC) in Missouri, moving to the Fort Knox in Kentucky. Walter Reed Army Medical in Washington, D.C. Naval Station Great Lakes in Illinois Naval Air Station Oceana in Virginia (extent contingent on reopening the former Naval Air Station Cecil Field in Florida) Grand Forks Air Force Base in North Dakota Eielson Air Force Base and Elmendorf Air Force Base in Alaska Rome Laboratory in New York Wright Patterson Air Force Base in Ohio
View the Final Updated BRAC 2005 List11
6 View other sections: www.crereview.com
Prosperous Times
Prosperous Times
There was a period in the first decade of the 2000s, during 2005-2007, which one can refer to as ?Prosperous Times;? where it seemed like everyone was prospering within commercial real estate. As shown in the graphs to the right or in the later part of this document, across all property types, sales were up, vacancies were down, CAP rates were at historic lows and rents were rising. Development was fast paced – construction and other bridge financing was readily available and inexpensive – the market was enjoying quite a ride. Debt capital was abundant. Not only for home purchases, refinances and other real estate related financial transactions—but for corporations and private equity. Many Buyers/Users looked to future projected income (in most cases excessively optimistic) to justify present values that were unsound. Leverage buy-outs were abundant—the large banks, Wall Street and pension fiduciaries were spending into the economy like they had not done in the recent past. Things were really good! Virtually all of the significant transactions (displayed on the following pages) were completed during this time. In fact, there were several record-setting quarters for the individual property types. Competition among buyers for the largest and best assets remained fierce. Condo Converters were running strong during these years. The prices they paid for multi-family properties outpaced the conservative business mind of the investor buyers.
Millions
CRE Sales Volume 2004-2007 ($5m+)
$250,000
$200,000
$150,000
Industrial Office
$100,000 $50,000
$0
Retail
Apartment
2004
2005
2006
Source: Real Capital Analytics
2007
In 2007 $423B of commercial real estate assets traded hands.
CRE Avg. Price/SF 2004-2007
$300 $271 $225
$250
$200 $150 $100
$175
$145
$196
$155 $175 $187
Industrial Office
$50
$0
$59 2004
$65 2005 2006
$74
$76
2007
Retail
Source: Real Capital Analytics
It seemed liked everyone wanted to be in commercial real estate. National commercial real estate trade shows, such as ICSC, experienced record levels of attendance. Commercial real estate companies seemed to grow in size, more offices opened up, more professionals would be licensed. To say the least, it was a great time to be in commercial real estate. The commercial industry lagged slightly behind the Housing Boom, which took place between 2003-2005.
Housing Market
The ?Housing Market Boom,” a period between 2003-2005; where home prices dramatically increased, bidding wars were frequent, contracts were above asking prices and houses remained on the market for short periods of time. For a while, it seemed you could pay almost anything for a home, wait a few months and make a profit selling it. During this time, consumer confidence soared. Home owners were building equity at a rate that outpaced their savings; and as such, many stopped putting money aside and were looking to their future net worth to be a product of the value of their largest investment – their home. This in turn, led to many homeowners stretching the envelope as to what they felt they could afford. However, it appeared to be a false “Prosperous Times” and this all led to...
Source: Fannie Mae
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“You could do less than half the things right and still have an awesome year…” anonymous
Credit Crunch & Housing Market
U.S. Home Sale Units (in millions)
During the ?Housing Market Boom,? inflated confidence in prices led lenders to give mortgages to unqualified buyers, which led to spectacular short-term gains. These "subprime" loans were packaged into groups that were traded like securities and purchased by some of the largest investment houses including Citigroup and Merrill Lynch.
20002001 200220032004 20052006 200720082009
U.S. Homesale Units
Median Home Price
Then, in 2007, home prices began a rapid decline. This occurred as mortgage loan terms changed and interest rates rose, causing homeowners to begin defaulting on the loans that they never should have qualified for in the first place. Many homes went into foreclosure and the excess supply of homes put downward pressure on prices. The relaxation of real estate valuation standards and real estate finance underwriting guidelines inflated loan to value ratios beyond levels that can be refinanced. The banks had to write down the value of their mortgage-backed assets. This created huge losses for banks in 4th quarter of 2007, and also restricted their ability to borrow and lend capital, which greatly reduced the capacity of banks to loan money, spurring a “liquidity" crisis. It came to a head when Wall Street hemorrhaged losses. Lehman filed for bankruptcy, Goldman Sachs and Morgan Stanley became bank holding companies, Wachovia merged with Wells Fargo, and Congress passed the Wall Street bailout package. A series of government measures to rescue ailing companies like AlG, Fannie Mae and Freddie Mac followed. The ?big three? car companies (General Motors, Ford, and Chrysler) asked Congress for a bail-out to prevent the auto industry from going bankrupt. Fearful Americans stopped shopping, and the retail industry hit a 40-year low.
Timeline of the entire Crisis12
Effect on Commercial Real Estate
250,000
200,000
In August 2007 on the commercial side of the business – as a result of the subprime mortgage debacle – the securitized debt markets became virtually non-existent. See CMBS Issuances Chart Credit became unavailable due to the global financial meltdown. As such, virtually every aspect of the commercial real estate industry was impacted. Establishing current values was near impossible due to lack of market activity, comparable sales and short sales.
CMBS Issuances
150,000
100,000 50,000 0 2005 2006 2007 2008 2009
Investors were basing investment decisions on pure cash returns vs. using leverage to bolster yields. According to Real Capital Analytics, values declined considerably, by as much as 45% . Many would-be sellers were holding properties off the market and in many cases, find themselves today in ?negative equity purgatory?. There was a huge gap between buyer and seller expectations. The result was a 88% decline in overall volume of assets traded from $423B year-end 2007 to $51.4B in 2009 (the lowest of the decade). 2009 would go in the record books as a devastating year for commercial real estate. Price / SF also declined and development was virtually non-existent. Average cap rates rose, causing prices to fall. Vacancies rose to record levels and there are many debt maturities on the horizon. As a result, many projects were put on hold: View 10 CRE projects put on hold Many distressed properties started to come to the market (with more slated to hit), and some commercial real estate professionals were taking advantage of this new-found opportunity.
Median Home Price (000s)
After a short period of ?false? economic prosperity (See Prosperous Times), Americans experienced an economic crisis. In 2008, the National Bureau of Economic Research announced that we were officially in a recession. Unemployment rates sky-rocketed with well over a million jobs lost in 2008.
7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
$245 $225 $205 $185 $165 $145 $125 $105 $85 $65 $45 $25
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Technology
Technology
Technology seemed to explode in the 2000s. Devices such as portable MP3 players, Nintendo Wii, Xbox, Netflix, DVR, Blue-Ray and iTunes all revolutionized consumer behaviors. Let’s examine some of the major technological advancements and their effect on commercial real estate.
Availability of Information
The Internet explosion took the commercial real estate business by storm. Information become more readily available. While sites such as CoStar and LoopNet (which went public in 2006, although both technically launched in the late 1990s) became increasingly popular, and in fact, became the ?norm.? It seemed as if commercial real estate companies needed access to one or both. Information such as comparables, that were traditionally coveted and indeed, a professional’s differentiator, were now readily accessible, and leveled the playing field for professionals. In residential real estate, this has become more prevalent with Listing Hubs, Zillow and Trulia; because now the information is accessible to the general public instead of agents controlling what their clients see. The question to ponder is, will commercial real estate follow in residential’s footsteps, as it typically does, in making information even more readily available and accessible to the public? Read an interesting LinkedIn conversation about information becoming more accessible.
Internet Shopping
Internet shopping wasn’t developed in the 2000s, but its popularity grew by leaps and bounds over the last decade. From a commercial real estate perspective, this had a direct effect on the retail sector. Music downloading sites such as Napster and iTunes severely damaged the CD industry, causing such stores as Tower Records to close their doors. Netflix has really put a dent in Blockbuster’s market dominance; and online discount shops have hurt retail sales, causing stores to close. View the list of companies that have recently closed shops. It isn’t all bad news though. There has been a recent shift in these shops requiring more warehouse space and shipping needs to house their internet distribution goods.
Smartphones
Without a doubt, the single technological advancement that changed commercial real estate the most in the 2000s was the advent of the Smartphone. The nature of the business is persistent and consistent contact with clients. The Smartphone allowed the convenience of being more accessible and ability to retrieve and send emails while on the go, instead of at your desk. These days, it’s rare to see a commercial real estate professional without a Smartphone. If you do see one, would you conduct business with him?
Social Media
Social Media exploded in the 2000s, especially the latter part of the decade. I don’t think we’ve fully experienced the ramifications of Social Media yet for commercial real estate, but it is coming. Social Media created a shift in the way we traditionally think about marketing. Typically, you would market your properties to your sphere of clients via email, which was very localized and had little interaction. Also, Social Media created a shift in the way we think about networking. Typically, most networking took place at an industry event. You handed out a couple of business cards and talked shop with a limited number of people. Most of the people were from your market. With Social Media, these boundaries can be broken. You can network with and market to thousands of people on a local, regional and national basis; at the click of a button! You can also reach many more people with your marketing efforts.
Video
With the launch of YouTube in 2005, videos became more accessible to the public. Like Social Media, Video hasn’t quite translated into the commercial real estate world, but many in the industry believe it will. As video gets cheaper and easier to produce, you will see more ?virtual tours? and less flyers of a building.
What’s Next
There are a couple of new technologies on the horizon that could have a dramatic effect on commercial real estate such as Augmented Reality and QR Codes to be aware of. You will have the ability to include more information on building signs, business cards or property flyers; that a user can download directly to their Smartphone. View other sections: www.crereview.com
Office 2001—2009
5,000
4,000 3,000 2,000 1,000 0
Trans
Office Transactions & Avg Cap Rate
12%
10% 8% 6% 4%
200,000,000 150,000,000 100,000,000
50,000,000 0 -50,000,000 -100,000,000
Source: CoStar
Office Absorption
2%
0% 01' 02' 03' 04' 05' 06' 07' 08' 09'
CAP
01' 02' 03' 04' 05' 06' 07' 08' 09'
Source: Real Capital Analytics
$250,000 $200,000
$150,000
Office Volume & Price/SF
$500 $400
$300
$35.00
$30.00
Office Rental & Vacancy Rates
16%
12%
$25.00 $20.00
$15.00
8% 4% 0%
01' 02' 03' 04' 05' 06' 07' 08' 09' Vacancy
$100,000 $50,000 $0
Millions
$200 $100 $0 01' 02' 03' 04' 05' 06' 07' 08' 09'
P/SF
$10.00 $5.00 $0.00
Rental
Source: Real Capital Analytics
Source: CoStar
Significant Transactions: CBD Name
General Motors Bldg 666 Fifth WorldWide Plaza MetLife Bldg Travelers Complex
City, ST
New York, NY New York, NY New York, NY New York, NY New York, NY
SF
Price
$/SF
Buyer
Year
1,925,000 $2,853,000,000 $1,482 1,550,000 $1,800,000,000 $1,161 1,600,000 $1,739,000,000 $1,087 2,840,000 $1,720,000,000 $606 2,600,000 $1,575,000,000 $606
Boston Properties JV Goldman 2008 Sachs JV Meraas Capital Kushner Companies 2007 Macklowe Properties Tishman Speyer Properties SL Green Realty Corp 2007 2005 2007
Significant Transactions: Suburban
Twin Towers Complex Twin Towers Complex Waterview Office Twr One & Two Fountain Sq Polk & Taylor Bldgs Arlington, VA Arlington, VA Arlington, VA Reston, VA Arlington, VA 1,100,000 $670,000,000 1,100,000 $495,000,000 633,908 616,178 886,447 $435,000,000 $420,000,000 $419,000,000 $609 $450 $686 $681 $473 Monday Properties Beacon Capital Partners Paramount Group Beacon Capital Partners Beacon Capital Partners
Source: Real Capital Analytics
2007 2005 2007 2007 2007
View next page for a breakdown of the Office Sector by year
10
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Office Breakdown
11 View other sections: www.crereview.com
Retail 2001—2009
5,000 4,000 3,000 2,000 1,000 0
Trans
Retail Transactions & Avg Cap Rate
12% 10% 8% 6% 4% 2% 0%
50,000,000
40,000,000 30,000,000
20,000,000 10,000,000 0
Retail Absorption
-10,000,000 -20,000,000
-30,000,000
Source: Reis
00' 01' 02' 03' 04' 05' 06' 07' 08' 09'
01' 02' 03' 04' 05' 06' 07' 08' 09'
CAP
Source: Real Capital Analytics
$80,000
$70,000
$60,000 $50,000
Retail Volume & Price/SF
$250 $200 $150 $100 $50 $0
$18.00 $17.00 $16.00 $15.00 $14.00 $13.00
Rental
Source: Reis
Retail Rental & Vacancy Rates
12 10 8 6 4 2 0
$40,000
$30,000 $20,000
$10,000
$0
Millions
01' 02' 03' 04' 05' 06' 07' 08' 09'
P/SF
01' 02' 03' 04' 05' 06' 07' 08' 09'Vacancy
Source: Real Capital Analytics
Significant Transactions: Strip Malls Name
Bay Street Emeryville Suburban Square Jack London Square Villa Marina Mktplace Winter Garden Village
City, ST
Emeryville, CA Ardmore, PA Oakland, CA Marina del Rey, CA Winter Garden, FL
SF
383,055 360,501 460,484 450,000 758,988
Price
$234,000,000 $215,000,000 $191,000,000 $189,000,000 $180,000,000
$/SF
$611 $596 $414 $420 $238
Buyer
LaSalle Bank JV Madison Marquette Kimco Realty Nat Electrical Benefit Fund RREEF Funds Cole Capital Partners
Year
2008 2007 2007 2006 2008
Significant Transactions: Malls
Mall of America Sawgrass Mills Grand Canal Shoppes Potomac Mills Westfield North Bridge Minneapolis, MN Sunrise, FL Las Vegas, NV Prince William, VA Chicago, IL 4,200,000 $1,800,000,000 $429 1,991,491 $1,025,000,000 $515 445,151 $766,000,000 $1,721 $324 $756 1,606,000 $520,000,000 680,933 $515,000,000 Triple Five Group Simon Property Group General Growth Properties 2006 2007 2004
Simon Property Group 2007 Macerich JV Alaska Permanent 2008 Fund Corp
Source: Real Capital Analytics
View next page for a breakdown of the Retail Sector by year
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Retail Breakdown
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Apartment 2001—2009
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Trans
Apart Transactions & Avg Cap Rate
12% 10% 8%
120,000 100,000 80,000 60,000 40,000 20,000
0
Apartment Absorption
6%
4% 2% 0%
01' 02' 03' 04' 05' 06' 07' 08' 09'
CAP
-20,000
Source: Reis
01' 02' 03' 04' 05' 06' 07' 08' 09'
Source: Real Capital Analytics
$120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
Millions
Apart Volume & Price/SF PPU
$160,000 $120,000
$1,050 $1,000 $950
Apart Rental & Vacancy Rates
$80,000 $40,000 $0 01' 02' 03' 04' 05' 06' 07' 08' 09'
P/SF
$900
$850 $800 $750
Rental
Source: Reis
9 8 7 6 5 4 3 2 1 0
01' 02' 03' 04' 05' 06' 07' 08' 09' Vacancy
Source: Real Capital Analytics
Significant Transactions: Garden Name
Empirian Village Jefferson at Bay Mdws Palazzo East The Avant The Park Kiely
City, ST
Greenbelt, MD San Mateo, CA Los Angeles, CA Annandale, VA San Jose, CA
Units
2,877 575 610 1,065 948
Price
$275,000,000 $220,000,000 $199,000,000 $198,000,000 $190,000,000
$/Unit
$95,586 $383 $327 $186 $201,248
Buyer
Empire Equity Group Archstone AIMCO Stellar Management Laramar Group
Year
2008 2006 2005 2007 2008
Significant Transactions: High / Mid Rise
PeterCooper & StuyTown Trump Place Villas Parkmerced Manhattan House Presidential Towers New York, NY New York, NY San Francisco, CA New York, NY Chicago, IL 11,232 $5,400,000,000 $481 12,330 $809,000,000 3,486 587 2,346 $675,000,000 $623,000,000 $475,000,000 $658 $194 $1,061 $202 Tishman Speyer Equity Residential Stellar Mgmt Richard Kalikow Waterton Associates LLC
Source: Real Capital Analytics
2006 2005 2005 2005 2007
View next page for a breakdown of the Apartment Sector by year
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Apartment Breakdown
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Industrial 2001—2009
7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
Trans
Industrial Transactions & Avg Cap Rate
12% 10% 8% 6% 4% 2% 0%
250,000,000 200,000,000
Industrial Absorption
150,000,000
100,000,000 50,000,000
0
-50,000,000 -100,000,000
Source: CoStar (Flex & Warehouse combined)
01' 02' 03' 04' 05' 06' 07' 08' 09'
01' 02' 03' 04' 05' 06' 07' 08' 09'
CAP
Source: Real Capital Analytics
$60,000 $50,000 $40,000
Industrial Volume & Price/SF
$100 $80 $60
$8.00
$6.00
Industrial Rental & Vacancy Rates
12%
10%
8% $4.00 6%
4%
$30,000
$20,000 $10,000 $0
Millions
$40 $20 $0
$2.00 2%
$0.00
Rental
Source: CoStar (Flex & Warehouse combined)
0%
01' 02' 03' 04' 05' 06' 07' 08' 09'
P/SF
01' 02' 03' 04' 05' 06' 07' 08' 09' Vacancy
Source: Real Capital Analytics
Significant Transactions: Flex Name
Dallas Market Center Sun Microsystems Cmplx Sunset Gower Studios San Diego Tech Center Northlake Data Center
City, ST
Dallas, TX Burlington, MA Los Angeles, CA San Diego, CA Melrose Park, IL
SF
805,000 415,000 647,000 700,000
Price
$212,000,000 $205,000,000 $185,000,000 $181,000,000
$/SF
$52 $263 $493 $286 $259
Buyer
CNL Income Properties Nordic Properties Hudson Capital Maguire Properties Microsoft
Year
2005 2007 2007 2005 2009
4,800,000 $249,000,000
Significant Transactions: Warehouse
Pfizer La Jolla Campus Metro Chicago Pacific Gateway Ctr 110-112 Hidden Lake La Jolla, CA Chicago, IL Torrance, CA Duncan, SC 770,000 $372,000,000 $483 $62 $156 $81 $171 Pfizer Corp RREEF Funds Prudential RE Investors John Hancock Insurance Co Lexington Corp Prop. Trust
Source: Real Capital Analytics
2004 2005 2006 2008 2005
3,743,211 $231,000,000 1,252,708 $195,000,000 1,807,421 $147,000,000 786,778 $135,000,000
Chino South Business Park Chino, CA
View next page for a breakdown of the Industrial Sector by year
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Industrial Breakdown
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What has changed
What has changed
Now that you understand what happened during the first decade of the 2000s, let’s take a minute to understand what has changed. Over 200 Coldwell Banker Commercial® professionals from across the U.S. responded to a survey about what they felt has changed in the commercial real estate industry. If you've been in the business for more than 12 years, what is different in the way you do commercial real estate now, than in times before the year 2000? Less Personal—Smartphones have made it easier to become accessible. However, it also made it easier to ?text? answers to questions. There are a lot less face-toface meetings. The personal meetings to develop strategic decisions and action plans are drawn out by streams of piecemeal emails. The transactions may initiate with a face-to-face meeting, but much of the follow up is done via texting and emailing. Although we haven’t fully transitioned away from it, the ?old school? style of brokerage is slowly fading and may fade more in years to come. However, it may never die, technology will just integrate more. More Information—Increased sophistication of marketing tools via the internet along with "user-friendly" software and sites allowed more users access to materials that were easy to understand, increasing the public's awareness and exposure to deals that were typically only available to "A" list and institutional clients. We can no longer use our ?possession? of the information to attract clients. Instead, we must focus on how clients use the information - helping them - understand it, interpret it, analyze it, simplify it and utilize it. Less Localized—The internet has paved grounds for wider dissemination of marketing material and improved communication. We are doing more regional and national business than we’ve done in the past. Networking is also much easier. You can connect with many more professionals and potential clients on the various social media sites in a matter of minutes. This would have taken years in the past. What are clients doing differently? Demand information faster—Most want property offering brochures sent by electronic means, not by fax or regular mail. They want you to text them regularly to keep them updated. They don’t want to sit down for an hour lunch; they are happy with you emailing the necessary info. Shift in what they need—Clients don’t need someone who is just going to complete the transaction. Sites such as Craigslist are assisting small property owners to market their property without the help of an agent. Clients now need an advisor. On the leasing side, they are using space more efficiently and using an open plan "bullpen" set up more and more. They are getting smarter with the amount of ?actual? space they need. Due Diligence—Since information has become more readily available, clients are spending more time "crunching the numbers.? They are being extremely patient, waiting for the right opportunities. Many clients are only buying when the seller and buyer can make a deal without the banks participating; or, there is a deal below a reasonable market price. Many are also purchasing based on cash flow rather than appreciation. Clients are pre-qualifying professionals they hire by visiting websites which include personal sites, national websites, listing database sites and social media sites. They expect more and won’t work with you if you are not qualified! Expect You to be Prepared—As a result of the client's due diligence regarding professionals, clients now expect their professionals to know something about their property and/or their corporate structure at the initial meeting. Professionals must be prepared to discuss various strategies with their clients before their first face to face meeting or first conference call. Feeling the effect of the Credit Crunch—Most transactions only occur when the sellers are willing or able to sell at steep discounts compared to the asking price of a couple of years ago or are able to provide some form of owner financing or some combination thereof. As a result, most sellers with better options are sitting on the sidelines while waiting for values to return. Even when sellers have sufficient motivation to sell and they and ability to lower their price, buyers often times cannot secure sufficient financing to complete a transaction with loan-to-value ratios being as low as 65% or lower. While owner financing is usually an option, many sellerssections: www.crereview.com results in many deals that fall through. View other are not in a position to offer it which
18
What the Future Holds
What the Future Holds
Although the last two years of the decade saw historic lows in property transaction volume due to the Credit Crunch, according to Real Capital Analytics, 2010 has started off on a positive note. The first and second quarter results show the progress made in the investment markets and the overall change in attitude from just a year ago. Sales volume increased from Q2’09 with every property type registering higher volume. Core rather than distressed sales were primarily behind the volume gains despite the huge overhang of distressed situations. Analysis also reveals that lenders are far more likely to restructure and extend rather than liquidate troubled assets. One sign of recovery is the increase of CMBS issuances which totaled 4 billion during the first quarter of 2010; whereas, only 3 billion were issued in 2009.
When speaking of the future of commercial real estate, there are several questions to ponder: What other mergers will take place within CRE? What will be the lasting effect of the BRAC? How long will the Credit Crunch effect commercial real estate and the economy? When will the economy as a whole turn around? Will internet sales continue to restructure the retail business? What is the next technology that will come out? Will data be made more available to the public? What effect will the new NAR Realtors Property ResourceTM (RPR) an online real estate library/archive with data on every property in the U.S.—have on the CRE industry? Yes, commercial information will be included. Read their blog for more info What new technologies will help evolve the Green movement? What new products / materials will have an effect on CRE building designs? What new technologies will increase operating efficiencies? What will drive leasing and sales in the coming years? When will the wave of distressed assets actually hit the markets and when will this activity slow down?
Sources:
1—www.thepeoplehistory.com/pricebasket.html 2—Dot-com bubble 3—www.commercialpropertyinfo.net/images/Office_Market_Report.pdf 4—Vacant Dot-Com Sites in San Francisco Turn Into New Apartments 5—Web 2.0: A new dot-com bubble in the making? Mar 19, 2007 6—Data Center Development Flying High Again In New Era of Cloud Computing. June 9, 2010 7—The Implications of September 11, 2001 New York attacks on U.S. Cities’ Urban Functionality and Corporate Location 8—9/11/2001 impact on trophy and tall office properties 9—The Economic Impact of Heightened Security Measures on the Commercial Real Estate Market, Post 9/11 10—Base Realignment and Closure, 2005 11—Final updated BRAC list 12—Economics of Crisis: Timeline of the entire Crisis
19
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About Coldwell Banker Commercial®
The collective commercial real estate experience and know-how found in the Coldwell Banker Commercial system is without comparison in the industry - giving us insight into the complex challenges both corporate occupiers and owners face each day. We understand that commercial real estate is a fluid and ever-evolving process. By delivering precise solutions, customized to your specific requirements, we can assist you to anticipate and capitalize on changes as they arise. Each office around the globe is empowered to provide clients with critical market knowledge and support. Additionally, CBC offices collaborate and leverage their global presence through industry-leading technologies, enabling CBC professionals to effectively serve their clients.
When working with a CBC professional, you are connected to a full range of capabilities and expertise in every major property type.
SERVICES
Acquisition and Disposition Services Brokerage & Transaction Management Corporate Services Capital Markets Property and Facilities Management Project Management Construction Management Auction Services Investment Analysis Market Research & Analysis Relocation Services Real Estate Owned Services
* Includes franchisees within the Coldwell Banker franchise system that are licensed to use the Coldwell Banker Commercial marks. 1 - Displayed on CBCWorldwide.com May 2010
Number of Companies Professionals Countries # of Listings Industry Leading Technologies
220* 2,200 + 22 16,300 1
A wealth of commercial real estate experience
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A Review of Commercial Real Estate In the 21st Century
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Saturday, January 29, 2011
Tallinn Real Estate Market Review December 2010 Q4
Tallinn Property Market
2010 Q4 Tallinn property and rental market review
• • • • •
Mortgage loans market, consumer security Property transactions, number of sales offers and average prices Central Tallinn rental market Rent prices, vacancy, period of rental, sample transactions Rental business considerations
Tallinn and Tallinn City Centre Real Estate Market
• • • Estonian banks have recently shown a tentative willingness to relax the criteria for issuing loans somewhat, and interest rates remain steady for the time being. The Euribor index of European bank lending rates has been rising at a moderate rate, which may impact on home loan rates in Estonia in due course. Property transactions in November actually saw something of a jump – by 30% in fact, though this is seemingly only a temporary rise, reflecting increased buying in the North Tallinn and Mustamäe districts of the city during that month.
Mortgage Loans Market
The balance of home loans has been continually falling and at the end of the third quarter of 2010 decreased by 94 million EEK. The rate of this fall is slowing however, and there has been a bigger turnover in loans than in recent months. Nevertheless, caution is still of the essence. In fact, we are at about the same level concerning new housing loans (which stood at 1.77 billion EEK in the third quarter of 2010) as was the case in the second quarter of 2009, when uncertainty about the real estate market and the economy in general was at its peak. Banks are remaining tentative about such areas as self-financing and loans for land purchases, and in general loan terms haven't been eased, but the situation is better than it was at the beginning of the year. Some banks have even pursued low key home loan advertising campaigns.
Interest Rates
Interest rates for home loans issued in Euros have remained stable this year at a figure of 3.3 to 3.5%, which given the increase in the incidence of home loans is a very reasonable rate. In general, interest rates have remained constant, in spite of the fact that the Euribor has been rising steadily (from an average of 0.952% in March to 1.224% in October).
As a result the average calculated margin for home loans has fallen (since the Euribor rate has increased but home loan interest rates have remained constant) from 2.6 to 2.2%. However the margin for home loans is higher than our main banks charge on their domestic markets in the Scandinavian countries. Nevertheless it seems likely that there could be a moderate interest rate rise as a result of any future Euribor increase.
Consumer Security
Customer Security as reflected in the customer barometer available at the Estonian Institute of Economic Research (www.ki.ee) has fallen from the August peak level of minus 1.4 to minus 5.7 points in October. The causes of this seem plain, since there is no rational reason why customer certainty in the closing stages of an economic crisis would be at a similarly high level as it was during the peak of the boom period. On a positive note, there has been a fall in the incidence of fear of unemployment, since the massive downturn and contraction in salaries of recent months has abated, and people are consequently less concerned about the threat. Real estate market conditions are an extremely important economic indicator, and fear of unemployment is an important factor which inhibits long term decisions such as those of acquiring a new residence.
Tallinn Property Transactions
The third quarter of 2010 saw 1 421 apartment transactions in Tallinn. This is 93 transactions more than the corresponding period one year ago. In general the market has been quite stable in line with the seasonal pattern. The number of transactions has risen, but not dramatically or erratically. Further increases here seem likely, but seemingly nothing approaching levels at the peak of the boom years, when a new owner could be found in every 11-12th property.
Prices and Value of Purchase and Sales Transactions
The average price per square metre of apartment transactions has increased by 16%, or more than 2 000 EEK per square metre, and stood at 20 860 EEK per square metre for a city centre apartment. However this does not mean that there has been a rise in the value of flats. This is because average transaction prices have also grown, due to the fact that a larger proportion of pricier new developments make up the figures. The total value of apartment transactions in the third quarter of 2010 stood at 1.1 billion EEK, which is a figure 19% higher than during the same period in 2009. Looking at the price of transactions, the dynamics of value and average area and comparing these with other regions of Estonia, it is clearly possible to say that the Tallinn real estate market is recovering. The apartment market for central Tallinn saw a 14% increase in transactions, (307 transactions) with a total value of 396 million EEK in the third quarter of 2010. The fourth quarter has seen something of a rise in the number of transactions however. Initially in October there was a decline of 5% in the number of apartment transactions in Tallinn city centre when compared with the corresponding period in the previous year. However in November this fall transformed into a rise of some 30%. On the other hand transaction average price, which had risen in October to a level of 21 957 EEK per square metre, fell in November to 20 636 EEK per square metre, the same level it had been in the third quarter.
Offers on Apartments
The number of offers on apartments in Tallinn stood at 10 426 in October, according to data from the KV.ee portal. This represented a rapid growth in the number of offers compared with the previous months. For example the highest previous monthly figure for numbers of offers since the beginning of the year had been 7 020. This sudden growth in offers can in part be explained by the new developments in the market coming into being – as mentioned in the introduction, there was a surge of activity in two regions of Tallinn in particular. At the same time this third quarter growth could also be due to the fact that people are anticipating the introduction of the Euro and in the last months before this want to keep things simple by buying and selling in the soon-to-be defunct Kroon. The average offer price hasn't seen a rise, but rather has remained at a steady high. The average October price offer in the KV.ee portal, for apartments in the entire Tallinn area, was 18 860 EEK per square metre, i.e. about the same level that it had been a year ago. Tallinn asking prices are also generally stable at a level which has already remained constant for five quarters in a row, (a range from 24 500 to 26 000 EEK), and in October stood at 24 768 EEK per square metre.
Forecast
• • • Talk of more loan issues from the banks will hopefully soon be translated into action, and should start to increase. An increase in the level of the loan balance itself will take more time. Interest rates during the forthcoming year will be either at the same figure or slightly higher following increases in the Euribor index. Apartment sales and purchases are active, but a significant increase in the volume of transactions isn't expected. Price levels will continue to rise moderately, which is due in part to a surge in the number of loan decisions • January 1, 2011 sees the introduction of the Euro, bringing situations people are unused to, due to the temporary upheaval in economic life that this will entail, and the real estate market will not be immune to this.
Rental Market in Central Tallinn
• • As predicted in our September report, the rental market has settled down, with many apartments being rented out to students for just one semester. New tenancies in October and November tended towards local people who signed longer term contracts. Consequently, rental prices stood at the average figure and not higher than average as would be the case with short term lets. • The Euro is coming; Estonia adopts the new currency on 1 January, 2011. Although greatly anticipated, few want to prognosticate what the exact effect will be, other than to say 'Euro - Welcome to Estonia!'
Rent Prices
Statistics show that average city centre prices have risen by 5-10% compared with the summer months, and currently stand at 95-100 EEK per square metre. The rise was most noticeable at the end of August and September, when the market is more seasonally active with students and other potential tenants searching for properties. This increased level of rental prices was mainly due to the influx of foreign students. They are usually ready to rent the premises at a relatively high price, as they can split the rent as well as the utilities costs with their flatmates, which makes an offer within the range of their budget. In our experience, price increases don't apply equally to all types of flats, but only to certain types (i.e. primarily tworoom flats and not studios or three-room apartments). Regarding prices in general, we have been able to set rents at their market rate and have also been receiving asking prices. Due to the relative equilibrium in the market we haven't been forced to accept reduced offers and have been able to obtain the asking price for clients. As with sales, it is essential to set the optimum asking price for rental premises from the outset. It is possible to start receiving inquiries straight after having published a rental advertisement and let out the premises up to two weeks’ later if the initial asking price and subsequent offer was adequate.
Vacancy
Since late summer/early autumn, the market has been very active, with the result that whilst there was a lot of rental accommodation available then; this autumn it seems that vacancies were surprisingly low. Spot (City24 portal statistics) confirms this; according to the number of rental ads, the trend was towards a decline until the second half of September. After that there was a tendency towards vacancies, and thereafter relative equilibrium (as assumed in our previous third quarter report).
Period of Rental
In October and November, rental agreements tended to see somewhat longer terms than had previously been the case. This is logical, because local clients often want an open-ended contract as opposed to a fixed-term contract, as this makes it easier to issue notice to terminate. Despite this, the market is seemingly also returning to shorter term lets. Looking at Goodson & Red Tallinn Property’s recent transactions the length of rental period typical for a mid-term let is one to six months. E.g. at out Tallinn office we have just issued a let for one month, while some students recently needed rental premises for one semester, and others rented for the whole year. The majority of short– and mid-term tenants prefer to conclude lease agreements for a specified term. Their secondary
preference is for lease agreements for the whole year and the third choice is lease agreements for an unspecified term. The scope for terminating the latter agreement easily is one of its main advantages.
Forecast
• • • Vacancies set to grow in December to January as students leave, or contracts expire. Rent prices to remain stable or to see a small increase due to rounding up for the incoming Euro. Payment of brokerage fee by a landlord is starting to become normal practice.
Price Comparison
* Furnished apartment in a good condition that complies with minimum
Size of apartment Studio 1-bedroom apartments 2-bedroom apartments Rent price range* 3900-5000.4750-6500.6900-8000.requirements. The rent price range of larger apartments is too wide to be highlighted in this table.
Summary
The Estonian economy generally seems to be growing. Unemployment is certainly still high and salaries clearly aren't rising yet, but the downturn is seemingly over. This means that there is stabilisation in the real estate market. Positive signals are evident in the loans market – loans are being approved and interest rates are at a reasonable level. However, in spite of local factors having only a minor impact, the Euro zone crisis can't be forgotten – notably those problems facing Greece, Portugal and the Republic of Ireland. At the same time Hungary, for example, has shocked the Eastern European region, through its pension reforms. In summing up, internal factors affecting the Estonian real estate market today are such that it is difficult to expect rapid rises, but the bottom of the downturn is clearly behind us as well. At the same time there is a number of external factors, the impact of which cannot so easily be predicted.
Rental Business Considerations
• •
Speculative – investing in rental premises is primarily based on anticipations of capital gains. Return on rent will not increase or decrease, but remain stable between 3 to 5%.
Returns on rental in terms of cash flow are a meagre 3 to 5% and usually remain at the lower end of the scale. This level of returns means that only minimal profits can be earned on cash flow. Most people who rent out residential premises expect to earn from the increase in the value of the property. On the other hand, lower prices can mean slightly higher returns on investment (yields) since, as we have seen, rents are stable or in fact have risen slightly. This means that it is a better time to buy from the perspective of returns than may be the case after some months if sales prices increase but rents remain stable. Aside from investing either for cash flow or capital gains, both of which have their pluses and minuses, investing in property may also make sense as a hedge against inflation. Inflation may continue to rise in the future (for example the fourth quarter figure for Estonia was around 4%) either due to reasons connected with the Euro or other factors, and so investment in property rather than liquid assets could be a smart move.
Optimizing Tenancies
There are a lot of potential tenants searching the market, mostly during the summer period, willing to rent premises for the mid- to long-term, i.e. for a couple of months or more. These are primarily corporate clients, business travellers and local people who require temporary accommodation. However, the organizational side of mid- to long-term lets is quite often problematic as it is quite difficult to find an available apartment for the required period. Landlords who stick to a textbook brokerage service prefer to have long term tenants since the search for a new tenant as a rule means additional work for a landlord, such as communicating with brokers again, agreeing on a brokerage fee and renegotiating an agreement with a service provider. When using a property management service it is worth considering not only long-term lets, but also short- or mid-term lets. Good furniture and a general good order of an apartment are the main selling points for a successful short- or mid-term deal. Successful mixed term rental consultants or property managers can be characterized by a wide customer database as well as a large portfolio of properties to offer to customers. A combination of rental periods means that it is possible to commence searching for the next tenants before a previous tenancy has expired. The high cost of short- and mid-term lets compensates for so called void periods between tenancies somewhat. However, it is often possible to find a new tenant before the expiry date of a previous lease agreement in these cases as well. Our statistics show that well-furnished high quality apartments offered for short and mid-term rent can provide 10-15% extra income per year, as against sticking solely to long-term lets . It is unnecessary to be concerned that short-term rental periods means a greater wear and tear to the apartment. On the contrary, cleaning and check-ups take place more frequently during short-term lets, which actually means less wear and tear than can be the case for longer lets.
Furnishing Apartments for Rent
There were no changes in furnishing apartments for rental. Apartments should certainly have kitchen appliances. Tenants are not ready to invest their personal funds in such purchases as in most cases they will not be able to take them away after the expiration of their lease agreement. In addition to kitchen appliances, rental apartments should also have wardrobes, which are also considered to be fixed furniture and cannot be taken away by a tenant. It is also useful to provide tables, chairs and curtains. Apartments should ideally be furnished in a minimal 'Scandinavian' style. Local customers are often looking for fully furnished apartments with one empty room. They will then furnish the empty room according to their personal needs. Such rooms are often used as a nursery or a home office.
Sample Central Tallinn Rental Deals
1-bed apartment in the heart of Tallinn
Rent: 8,000 EEK + utilities (asking price 8,000 EEK*) Rental period: one month Details: 53,9 m2, 3rd floor, fully furnished Pros: central district yet quiet area, new building, elevator, fully furnished, large balcony Cons: no allocated parking Client: local or foreign professional
1-bedroom apartment in the Old Town
Rent: 6,500 EEK + utilities (asking price 7,900 EEK) Rental period: for unspecified term Details: 57,3 m2, 4th floor, fully furnished Pros: Old Town, renovated building, fully furnished, fireplace, parking space. Cons: no balcony and storage Client: local / private individual
2-bedroom apartment in the heart of Tallinn
Rent: 7,500 EEK + utilities (asking price 7,900 EEK) Rental period: for unspecified term Details: 75,1 m2, 3rd floor, fully furnished Pros: city centre, quiet area, new building, elevator, fully furnished, large balcony, a storage room Cons: no allocated parking Client: local / private individual
* Asking price for period of rental 2 months ** The tenants were not charged a commission
So, what do you think?
We would very much like to hear your views and experiences. Or if you have any questions you’d like us to address, email, tweet us or leave us a comment on our website or Page.
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Goodson & Red Tallinn Property Managers & Consultants
Goodson & Red Tallinn Property Consultancy is dedicated to delivering premier residential and commercial property services in Tallinn. Through more than 6 years of consistency in one of the most rapid property markets in Eastern Europe we have developed an enviable reputation for our in-depth market knowledge and expert, considerate personal service. Although our knowledge is extensive both in the letting/ management and the selling/investing process, in Tallinn and throughout Estonia we are widely regarded as the short-lets, mid- and long-term rentals, management services, home search, as well as buy-to-let consultancy. At Goodson & Red we embrace change and are constantly challenging tradition because we have a strong desire to improve the way our industry operates. Unlike some established estate agents, who offer every location in Estonia and around the world and claim to be experts in all of them, we specialise, we grow gradually and study each our market thoroughly, and we are commiterty is our passion, we perform with integrity and values, and relationships are most important for us; we constantly
endeavour to provide ease and comfort through considerate personalised and professional service to all our clients, whoever they are and whatever their needs for property in Tallinn. Our services include comprehensive long and short term lettings services and professional property management service for landlords, home search, comprehensive property brokerage services for sellers. We also offer foreign buyers consultancy to help investors diversify their portfolio, together with a development consultancy service, pro-
market leader in our niche of the property market: serviced viding effective marketing and branding for developers. Whatever your requirements for Tallinn property, Goodson & Red is perfectly positioned to help you achieve your aims. Please do not hesitate to contact should you have any further questions.
E-MAIL us info@goodsonandred.com CALL us on +372 666 1650 or +44 20 8816 8174 VISIT us in person at Jõe 5, Tallinn 10151
ted to going beyond the sale. Our philosophy is plain: prop- OR www.goodsonandred.com
Goodson & Red Tallinn Property Consultants and Managers RED Group PLC, Jõe Str 5, Tallinn 10151 Ph: +372 666 1650 / +44 20 8816 8174 E-mail: info@goodsonandred.com Www.goodsonandred.com
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